Creon Butler
Hello, everyone. My name is Creon Butler, and I’m the Director of the Global Economy and Finance Programme at Chatham House, and it’s my great pleasure to welcome you to today’s event, which is the second in our series of Big Picture conversations with leading world figures, which we’re very pleased to be hosting in partnership with Societe Generale. And I’m absolutely delighted to welcome as our guest today, Professor Lord Nicholas Stern, Chair of the Grantham Research Institute at the London School of Economics. In addition to his Grantham role at the LSE, Nick is also the IG Patel Professor of Economics in Government and Co-Director of the India Observatory.
He has an extraordinarily distinguished career as an Economist and policymaker, and I’d just like to pick a few key highlights. He has been the Chief Economist at both the EBRD and the World Bank and served as the Head of the Government Economic Service from 2003 to 2007. He also famously authored the highly influential Stern Review on the Economics of Climate Change, which kicked off his long involvement in the battle to address this existential threat. Indeed, many of our audience may well recall the TV pictures of Nick celebrating at the conclusion of the Paris Agreement in 2015. I certainly do.
Nick has also published 15 books and over 100 articles, and I’ve been lucky enough to know him for quite a number of years, while I’ve been working as a policymaker in various parts of the UK Government, and I can absolutely attest to the clarity of his insights, his skill at applying economic theory and empirical evidence to practical policy issues, but also, his tremendous sense of purpose and optimism. Welcome, Nick. It’s really great to have you with us today.
I will shortly hand over to Kokou Agbo-Bloua, who is the Global Head of Economics at Cross-Asset Quant Research at Societe Generale, and he’ll be saying a few words on behalf of our partners in this series, but first a few quick housekeeping points. This conversation is on the record and is being recorded. We will be very tight for time, with just 45 minutes in total, but we’re very keen to take some questions from the audience and to include those in the conversation.
So, please, as soon as you’ve got any questions, please put them in the Q&A function on Zoom, and I will either read them out, or I may come to you to ask them in person, if we’ve got time. But please also do keep your questions short and to the point, so we can get in as many as possible.
Right, Kokou, if I may hand over to you for your introduction.
Kokou Agbo-Bloua
Thank you, Creon, and hello, everyone. Societe Generale is delighted to be partnering with Chatham House on this series of discussions on important macro themes, and with today’s interview focusing on one of the planet’s most influential matters, affecting us all personally and professionally. At SG we are also very proud to have recently won the prestigious IFR Bank of the Year for Sustainability Award. The drive for sustainability and sustainable development is underpinned by the profound purpose of long-term survival. As a society, we need to address the challenges of climate change and manage the much-needed energy transition.
It is also important to be aware of how these intentions can have unintended consequences. That said, and to quote JFK, “There are risks and costs to action, but they are far less than the long-range risks of comfortable inaction.” The impact on capital market is very profound and pervasive in terms of flows, portfolio restructuring, asset valuation, transition risk assessments, in a complex geopolitical environment.
In a nutshell, we’re seeing an interesting mix of inflation, greenflation and also fear of stagflation. In today’s live interview, we are clearly honoured to have Lord Nicholas Stern, who is uniquely positioned to provide assistances on the urgency of sustainable development and the economic implications. It is clear that we need to act on scale and it’s going to be extremely valuable to hear Lord Nicholas Stern’s insight on if we are doing enough, are we doing it right, are we going to be on time?
These represent many of the questions received by our clients during the registration process to include in today’s interview, for which the key theme have been collated and will be included, along with a selection of specific questions received, which will also be asked. Many thanks for sending these questions in and thank you for joining today. I’m sure we’re all looking forward to this conversation. Creon, back to you.
Creon Butler
Kokou, thank you very much. Great. Nick, as you know, this series is called the Big Picture Series, so perhaps I could kick off by asking you at the outset what you see as the big themes that policymakers and financial markets really need to focus on at the moment in the battle to get to net-zero, and also, how you see the current state of play in the light of both COP26, but also the impact of the Ukraine war. So, maybe I could put that big picture question to you at the outset.
Professor Lord Nicholas Stern
Thank you very much, Creon, and it’s very nice to be with you and Kokou, and my thanks to Societe Generale for their participation in the event, and of course, Chatham House. The big picture is enormous risk on the one hand, and a very attractive alternative growth model on the other, but recognising that that growth model does not come unless we invest very strongly and manage a profound transition with its dislocations.
So, that is the, sort of, the short version of the big picture. On the risks, we have to be very clear just how big they are, and often in these discussions there’s a, kind of, sort of, relaxed attitude, “Well, you know, they end up at 2.5 or three or something, we can live with that.” But the answer is, we can’t. The last time we were at 3o centigrade was about three million years ago. Remember, homo sapiens is about a quarter or a third of a million years old. We haven’t been at 3oC for three million years, way outside the experience of homo sapiens.
At that time, sea levels ten to 20m higher than now, that would put underwater many of the big cities of the world. The storm surges associated with that would be devastating. Many deserts would increase in size, probably Southern Europe would look like the Sahara Desert. The – many other areas would be subject to intense, extreme weather events, storms, hurricanes and so on. So, most of the ice would go off the Himalayas, so the sponge that holds the water, and there’d be more water at higher temperature, would not be there, or at least most of it not be there, which would mean uncontrollable torrents off the Himalayas for big parts of the year, and dryness, aridness in other parts of the year.
Two or three billion people, if you look round the Himalayas, depend on that place for their water. Similarly, if you look to every other part of the world, so the risks involved in those higher temperatures are immense. We also know that the risk involved in the difference between 1.5 and 2oC is very big and there was a very important Intergovernmental Panel on Climate Change report in 2018 on the difference between 1.5 and two. And when you look at it in terms of how much more likely extreme events are in the 2oC scenario from the 1.5, you come very quickly to the view that we’d better make best efforts to keep to 1.5.
Remember, the Paris Agreement was well below 2oC, efforts towards 1.5, and then that was in COP21 in 2015, and then in COP26 in Glasgow at the end of last year people were homing in on 1.5 for very good reason. So, we must be very clear about the risk side and recognise the physics of what we have to do to get there, which is to essentially cut by 2030 something close to 50%, 40 or 50%, to keep 1.5 in reasonable reach.
Net-zero of course is fundamental to the story. If you want to stabilise temperatures you have to stabilise concentrations, if you want to have stabilised concentrations, the flows have to be net-zero. If, God forbid, you stabilised at 3oC you’d still have to have net-zero. The earlier you go to net-zero, the lower the temperature at which you stabilise. So that’s the basic risk and physics side of the story.
The creation of this new approach to growth and development will involve a great deal of investment, particularly in the energy sector. But what we’ve come to see is so much of that story is investing in ways which give us cheaper energy than we had before, even taking, you know, even without the carbon price or subsidy. And that’s a remarkable phenomenon of the last five or ten years, particularly post-Paris actually, which gave the sense of direction.
There are other areas, which are going to be more expensive and the challenge is to invest strongly now, at the same time as we reduce the costs in the areas which are more expensive. But if we do, we have a much more resource-efficient economy, including energy-efficiency, but beyond that. We have cities where you can move and breathe, we have ecosystems which are robust and fruitful. Well, those three things sound like a good idea, even if you’ve never heard about climate change. In other words, we can create a much more attractive approach or model of growth than the dirty and destructive model of the past.
We have in our hands a growth – the growth story of the 21st Century. That’s where Larry Fink, you know, Head of BlackRock, argued that the next unicorns would come. It’s where Philipp Hildebrand, you know, the Deputy Head of BlackRock, called it the biggest capital reallocation since the Industrial Revolution. These are major changes. They’re changes with enormous potential, but they don’t come for nothing, and you have to invest. I don’t think it’s right to think of it as a cost, but you have to invest to get there, and that’s the big part of the story, probably another two or three percentage points of GDP in the richer countries, a bit more in the poorer countries, eminently feasible in a world, which has planned investment too small in relation to planned saving.
So, that’s a big picture story.
Creon Butler
Indeed, so, the – there is a really positive prospect out there, but we have to invest on a very large scale to get there. But there are certainly concerns in the markets that this won’t work out as we want it to. So, for example, that as you scale up the investment this may create shortages of various, kind of, key commodities, that governments may not deliver on the commitments they’ve made to facilitate the green transition and this could further add to inflationary pressures.
So, there is this concern about green inflation in the next – in the medium-term or the short to medium-term. What’s your view on that, and in particular, what do you think the response of central banks should be?
Professor Lord Nicholas Stern
Well, there certainly will be big changes, big dislocations that have to be managed, including in the labour market, including in the prices that people face. There will be some areas where you do see a lot of pressure on the things which are now being used more intensively. Of course you’ll see less pressure on the things which will be used less intensively. It might seem strange to say it now, given the crisis that we’re in, but as we move away from the dirty, destructive, those – the value of those things will go down as the value of oil companies, gas companies had been going down very strongly before this crisis.
I’m not terribly comfortable with the idea of green inflation, because most of this is about a change in relative prices and, you know, it’s about levels and relative price levels. I think the inflation side is probably not the right way to look at it, if you think of a permanent upward shift in inflation, if that’s what you’re talking about. I don’t think that’s the issue, but I do think that there are pressures to be managed, and if you look at the great changes in the past, you know, and if you look at the spread of the railways, there were, you know, dislocations, instabilities in those transformations and we have to recognise that these can happen and think ahead and think best how to manage them.
For example, in labour markets, in coalmining areas we have to invest strongly in people and places in those areas, whether it’s South Africa or India or Poland or wherever we look. And that must be part of the whole investment package story, just as adaptation has to be part of the investment package story as well, and that emphasis on adaptation was very clear and strong in Glasgow, as it should be, because even at the 1.1 we are now, there’s a lot of adaptation we have to do.
Creon Butler
You are, you know, a really expert Development Economist as well as being a Climate Economist and one of the concerns, as you highlight, is that in that, sort of, volatile period there will be vulnerable groups that suffer as a consequence of the volatility because they just don’t have the wherewithal to protect themselves, they don’t have access to the whatever it is, the financial instruments or the financial buffers, they can’t necessarily get some of the returns that are available from the, sort of, investment story.
And one can see, in a sense, the consequence of not looking after those groups. Not only is there, kind of, human tragedy, but there’s also the impact it can have on populism and the political movement. So, what do you – what more do you think the world needs to do in this space, or how can we get it organised to make sure that in this transition, we don’t face some really quite unacceptable consequences for the poorest in society and the political fallout from that?
Professor Lord Nicholas Stern
I think we have to begin by recognising that climate change hits poor people hardest and soonest. So, the most damaging path for poor people is to ignore climate change. You know, Africa is a coun – is a continent which has contributed least to the greenhouse gases, but is the most vulnerable as a result. So, I think recognition across nations of the responsibility to help with the adaptation, which we now have to make, and the investments that we now have to make in the transformation, that is a very important part of the approach to social justice. There’s social justice across nations, social justice across generations, which is a big – obviously the central issue in climate change, and there’s social justice within nations.
Within nations, as I’ve already argued, investing in people and places is of fundamental importance. I’m not sure that volatility is the right language for that kind of process. At the moment you can see the volatility associated with dependence on fossil fuels. You reduce volatility by moving as fast as you can away from fossil fuels, as I think we’re realising now, and that’s the central piece of the reaction to what we see in the Ukraine. So, I think it’s managing dislocation, is the language that I would use.
If you think of the electric cars, where electric – on the whole it’s richer people who buy new cars, and so new car – electric cars are usually new cars ‘cause there’re not so many second-hand cars. So, managing that story for people who, you know, are living off rather old cars would be the kind of thing which you’d have to do. You could have, you know, particular subsidies or trade-ins for old cars. Poorer people don’t necessarily have backyards where they can install chargers. So, finding out ways in which, you know, people who might live in city apartments, which would not necessarily be rich apartments, could find ways of charging and so on.
So, there are all kinds of design issues that are enormously important here, but there are also great potential benefits for poorer people. You know, I’ve lived, you know, I’ve worked for five decades on the economics of development, and still do, and, you know, if you think of decentralised solar, it’s actually giving people a chance to have access to electricity in a way that they can control and not be dependent on a grid. And that’s enormously important for poorer people, whether it’s a shopkeeper in a small, sort of, hole in the wall who’s able to keep the lights on and get on with the retail business into the evening, or whether it’s a, you know, a poor family where the kids can study at home, you know, whether it’s poor – a poor family where the girls don’t have to go out and get so much firewood because they’ve got this alternative form, you know, that’s what decentralised solar can do.
So, as we manage the transition and its dislocations rather than the volatility, we, at the same time, should work very hard to gain these big upsides that are available, for example, decentralised solar if we do it well.
Creon Butler
Yeah. I mean, the private sector financial markets are going to play an absolutely crucial role in this transition, and indeed, this was one of the main outcomes from COP26, the Glasgow Financial Alliance for Net-Zero, and we also have, in the last couple of years, the development of – very powerful development of the ESG movement. And yet one of the things that the, sort of, recent events in Ukraine have shown is in a way the markets have – perhaps not in the medium or long-term, but in the short-term, they’re focussed on a very different group of assets now, just because basically of the issues created by Ukraine and the need for ener – for hydrocarbon energy in the very short-term.
So, what is your view of the ESG movement generally, what – how important do you think it’s going to be? What is needed, if you like, to make it an effective tool to capture this, sort of, very positive and optimistic view you see in the future?
Professor Lord Nicholas Stern
Let me be clear, Creon, I’m very optimistic about what we can do. I worry a lot about what we actually will do. But having a picture of what you can do is logically prior to moving down a road to where you’re absolute – where you’re, you know, implementing and delivering, so, I – it’s very important to draw that distinction.
Creon Butler
Understood.
Professor Lord Nicholas Stern
The Global Financial Alliance for Net-Zero was a very important advance and, you know, as most people on the call will know, people managing assets of institutions, managing assets of around 130 trillion, committed to net-zero. Now, of course there’s a big difference between the commitment and the delivery, but the sense of direction is of great importance. At the moment, the movement is really quite slow and that is the challenge, to accelerate that movement.
Financial markets, and of course in the real markets, which are going to drive this forward, the real investment story, moving forward quickly is the big challenge. I think it’s fair to say – and there’s quite a few empirical studies, including from NYU and elsewhere, showing that at the moment climate’s really not anywhere near strongly enough in the market, if you think of patterns of investment, implicit carbon prices in the actions that people are taking and so on. However you measure in the market the climate really is not strongly in the market.
So, that means that as it moves into the market, as policies start to bite, as we hope they will, then you would see quite a bit of revaluation, and that is going to happen, and that’s why the Task Force on Climate-Related Financial Disclosure, you know, the information side of it all, is so important. So, I do think that as this story moves from declaration of intent towards action, you’re going to see quite strong changes in relative prices.
Course, you were beginning to see some of that, not fast enough, in the big fall in the value of oil and gas-related assets in the five or six years preceding the tragedies in – and the war in Ukraine. I think you’re seeing some revaluation as a result of the big bounce upwards in oil prices, but that’s temporary, just as what we saw in the 1970s was temporary. And as a result of what happened in the crises also produced by a war and social disruption in the 1970s, that triggered a movement away from coal and gas and oil, particularly obviously in the case of the 70s, oil and gas. And so you’re going to see, as a result of all this four, five, six years down the road, oil and gas prices being lower than they would otherwise have been. But we’re going to have to recognise that being dependent on fossil fuels implies, as we’ve seen so many times, volatility in those markets. So, what we’re trying to do, with the move away from fossil fuels, is to make those markets less volatile.
But, you know, if you’re looking over five or ten years through this transition, I guess, it’s quite likely that you’re going to get another disruption in oil and gas markets that would, you know, spike up prices again. But I do think that this movement away from fossil fuels has been accelerated by what we’re seeing in the Ukraine tragedy, and that is something that we have to recognise. It’s not, as it were, the end of the fall of oil and gas prices, it is actually a spike in a trend, which will continue downwards.
Creon Butler
I mean, if you look at the different elements of the hydrocarbon mix, I mean, clearly we have to stop using coal as soon as we possibly can. Even with oil, because of the drive to EVs, one can see the prospect of the demand for oil, at least in terms of transport and so on, tailing off really quite quickly.
Gas is somewhat different, isn’t it, in a way that it is in some ways, if you’re going to use a hydrocarbon fuel, you should be using gas, and also there’s a lot of uncertainty about precisely how long we need to use gas, where we’re going to get the gas that we need to use, and so on. Do you – what do you think the – and this is, kind of, this causes a lot of uncertainty in markets and a lot of this volatility, what do you think the – is there a special, kind of, regime needed for gas? Is there – does there need to be more direction from governments or does, if you like, the private sector need to work out more clearly what exactly the role for gas is going to be in this transition?
Professor Lord Nicholas Stern
Yeah. Could I just add one footnote to the preceding?
Creon Butler
Sure.
Professor Lord Nicholas Stern
Absolutely, an important question on gas, Creon. If I could add one footnote to the preceding question, is that, I’m not totally comfortable with the language of the ESG movement. I mean, it’s not that it’s wrong, it’s right, but the centre stage should be investing in the technologies of the 21st Century rather than the technologies of the 20th Century. It’s recognising where the investment opportunities and the technologies are going. That’s the prime reason.
Now, ESG is a very valuable idea, in terms of being careful about what you’re doing and, you know, recognising the damage that you can cause. But at the same time the positive picture of taking the opportunities of this century, you know, as I, you know, quoted Larry Fink and Philipp Hildebrand at BlackRock, I think that’s the primary way of looking at it, with the ESG coming in behind it, if you see what I mean.
Now, turning to gas, and if we want to decarbonise our economies, we have to essentially electrify our economies and make the electricity clean. That’s the biggest part of the investment story. In the UK, we probably would have to roughly double our electricity supply between now and 2050 to take into account the electrification of transport and the electrification of much of heating, so, I think it’s when we think about the energy transformation, we should put the electricity expansion and the greening of electricity at centre stage, that’s where most of the investment will come.
The grids will be a very important part of that story, and what we need is an integrated – just taking Europe now, an integrated grid structure, including the UK, which is not badly connected, but it should be still better-connected to the rest of Europe. We need a better grid structure and, you know, we should be taking electricity from central Spain, from the sunshine and from Northern Europe, in the case of the wind, southwards from Northern Europe and the wind and northwards from Spain from the solar. And that is a big part of the answer of how you organise for the intermittency of wind and solar, which is a big part of the answer to your question about gas, yeah? So we do have to manage the intermittency of wind and solar, but we do it through much better grids, much better management of supply and demand, and we know how to do all this, so that we liberate, as it were, the possibilities for the renewable investments.
There will be a period of time where we’re going to need gas for some of the peaks, but I think it’s better to start with the question, “Well, how do you organise yourselves so that peaks are much lower, yeah, and they are shifted over space and time?” And that’s why the grid structure and the management of supply and demand is so important.
Nevertheless, for a while, you’re going to have to be able to manage the peaks, so that gas in particular will be relevant for quite some time. If you manage – if you’re going for net-zero by 2050, you probably need a net-zero electricity system by 2035 or 2040, so you’re going to need some element of gas up to there. It’s going to take probably a little longer to degasify our heating structures, so we are going to need some sort of gas up to 2050.
After, of course, you can do it with capture and storage and that’s going to be part of the equation as well. But getting rid of coal very fast, of course, is extremely important and totally possible, and we know that renewables are cheaper than fossil fuels for electricity in most circumstances in the world. It’s managing the peaks and so on and managing the transition, so, there will be gas for a while.
We can replace the gas over time, the methane gas with hydrogen, so that will be one possibility that we really have to develop, green hydrogen is going to be very important. So, when we talk about gas, we should recognise that hydrogen’s a gas as well…
Creon Butler
Indeed, yeah.
Professor Lord Nicholas Stern
…and we’ve been used – we should be preparing to use that same type of infrastructure.
Creon Butler
Yeah, and we’ve now got, I’m very pleased to see, a number of questions coming in, so, if I may feed some of these into the discussion. One of the factors that the TCFD framework picks up is policy risk, not just, if you like, the, sort of, physical risk of climate change, but policy risk, and one of the questions we’ve got is – and also, there’s an enormous range of policies that need to be implemented, as you described in your, kind of, earlier, your introduction.
So, one to the questions is, which of the, if you like, the new policies are going to bite first and, you know, what would the impact of these new policies be? So if you were, sort of, in the financial markets, let’s say, and you were looking at the range of things governments are going to have to do, what are the things that would really stick up in your mind as being things that are going to come into force very quickly?
Professor Lord Nicholas Stern
Well, we do need carbon prices and I think we’re starting to see Europe move well in that direction. But I don’t think we’re going to see carbon prices in the United States any time soon. So we should recognise first the importance of carbon pricing, but also that different countries will be using different approaches.
Regulations and standards will be very important in this story. You know, for example, the statement that you can’t or the policy that you can’t sell internal combustion engine cars, vehicles after a certain date, 2030 in the UK, gives a very powerful sense of direction, and you can see the car companies across the world responding to that regulatory and standard approach.
We are going to see the redesign of our cities to make them more bicycle and pedestrian and public-transport-oriented. So, there’s a pri – I’ve given the example of pricing, I’ve given the example of standards, and given the example of design, and if you’re looking as an investor at the policies, I think you have to be looking at the credibility of all those kinds of policies.
I think that some aspects of standards probably have stronger credibility than some aspects of pricing, although the Economist in me obviously reaches for the price incentives. But you have to recognise that we’re in a world with lots of uncertainty and in a world with increasing returns to scale, and with in – not only in production, but also in discovery, and where you have uncertainty in increasing returns to scale, the economic theory is not quite so clear.
You know, sometime – my great friend, the late Marty Weitzman, made this very clear, sometimes you need quantities, sometimes you need prices in those kinds of circumstances. So, I think you have to look across the swathe of policies that are going to be necessary right across the economy, and try to press for their credibility, and I think on the whole the private sector does say, “We want clear, strong policies to incentivise this transition,” and they’re right. But you have to look across the whole range of policies, and of course, I haven’t mentioned the capital markets and R&D.
You know, the capital markets are there to help take risk, but everyone involved in those markets knows that they do it better and worse, depending where you look and where you are, and where you are in time. And I think development banking, as we’ve set up the National Infrastructure Bank in the UK, quite correctly, many of us have been pushing for that for a long time. That’s going to be part of the policy story as well, operating in capital markets and supporting R&D. So there’s a whole range of policies that I’ve tried to describe there. They all matter, yeah, there’s no one-shot route to this. So, if you’re looking at credibility of policy, I think you have to look right across the policies that are going to be necessary.
Creon Butler
I mean, one of the questions actually picks up on your point about technology and in particular asks the role of the public sector in driving technology. We had, as you recall, round the time of Mission Innovation, the, sort of, the – well, Mission Innovation, which was essentially a drive to raise public investment in the technologies necessary for wind power, for solar and so forth. But how do you see the balance between the public and the private sector in driving the, kind of, technological change we need?
And maybe I could just put alongside that, I mean, you’re right when you focus on EB, it’s truly extraordinary how quickly the car industry has completely abandoned any type of R&D investment in diesel and in hydrocarbon and it’s all in EV or hydrogen. I mean, this was – and this is several 100 billion dollars a year of investment going into this. Is there something we need to learn from that about how to bring about these technological shifts? I mean, you’ve cited the ban on hydrocarbon cars from a certain point. Or is there something else that we could then apply in other technological areas?
Professor Lord Nicholas Stern
It’s a collection of things. First and foremost, clarity on the sense of direction, clarity and credibility on the sense of direction.
Paris helped that and you saw a great pick-up in these kinds of commitments post-Paris, post-COP21 in 2015. I do think the date by which you cannot – beyond which you cannot sell internal combustion engine vehicles is an important example of bringing that clarity in a way which did – has helped with a direct response, very impressive response from the car industry. So there’s clarity in the sense of direction and clarity in the policies.
There’s enabling. You know, I emphasised, and I will do it again, the importance of the grid structure. If you’re going to be investing in different ways of doing things, investing in storage, investing in renewables, you’ve got to be confident you can sell into a grid. So, your confidence in making those investments and innovations and then at the same time driving down the cost, is going to depend on that part of the enabling structure, and that’s going to be very important.
The – there’ll be some things, which are technically pretty difficult, where you’re going to need the research departments and the universities. So, making sure that your research funding and innovation funding structures, which most countries have their version of them, make sure that they are getting behind the, sort of, the more difficult, research, knowledge-intensive. I think there’s still a lot of work to do on the storage side. You know, we have lithium-ion batteries, sodium-ion batteries, but we’re going to need further advances in battery technology.
I suspect that green hydrogen has got quite a lot of oomph behind it in the private sector, whether it’s, you know, Reliance and Mukesh Ambani, or whether it’s Andrew Forrest and Fortescue. So many people are in China, so many people round the world are pressing very hard on green hydrogen, but it’s important to show that there’s going to be a good market for green hydrogen. So, if you, for example, said that after a certain date, that steel produced in a dirty way would not be acceptable, then you’d find that that acceleration of green hydrogen would go still further because that’s an important part of going for green steel.
So, I think it’s going to be a combination of, you know, good, clear policies, the enabling environment, research and development where the – some of these issues are particularly difficult and we’re not there yet. I think it’s going to be a combination of all those things, but it’s going to be absolutely crucial part of the story.
Creon Butler
Yeah, Nick, thank you so much for those insights. Unfortunately, we’re getting very close to the end, but I want to bring in one further issue, which is, if you like, the geopolitical context for this transition. We’ve seen, for example, as a result of the Ukraine war multilateralism under enormous stress, and that includes the economic aspects of multilateralism.
You’ve also got, if you like, the geopolitical consequences, and this is one of your questions, of the shift from hydrocarbons to renewables, which has enormous implications potentially over time, and yet we need, if you like, a geopolitical consensus and institutions in order to oversee this transition. So, in the sort of final couple of minutes or so, if you could just give us your perspective of how you see the, if you like, the geopolitical framework evolving. Should we stick with the G20 for example as the main vehicle, or do we need to look somewhere else, and how can we manage these pressures?
Professor Lord Nicholas Stern
Yeah, obviously, we live in a fractious environment, but actually, climate is one of the – arguably the biggest issue around which we have quite powerful global agreement. I mean, if you look at the 190-some countries involved in the Glasgow Pact, if you look at the second week of Glasgow in November last year, the United States and China issued quite a strong and interesting joint declaration around climate action.
So, I think we should first recognise this as an issue around which the world can – ‘scuse me, I’m going to sneeze – the – ‘scuse me – and this is a tree allergy, it’s not COVID. The – but that is an issue around which people can gather, and that’s a very important part. So, in other words, it requires international collaboration, but it can also create international collaboration, and we should push very strongly on that side of things.
Secondly, we must recognise that this new, clean, attractive model of development is most important for the developing countries of the world. They can skip the dirty phase and they’re most vulnerable to the terrible effects of climate change.
So, seeing climate and development as integrated and supporting that through our international financial systems is going to be enormously important, and in so doing, enabling the private sector to invest in the emerging markets and in developing countries. So, recognising that we can all get together around climate action, but recognising also, that getting together around support for developing countries will be a very important part of not only averting the damages of – the worst damages of climate change, but also bringing people together around the common goal of sustainable development and fighting poverty and raising living standards.
I think that is absolutely fundamental and that will involve a big increase in the activity in our international financial institutions, in the World Bank, the regional development banks, the IMF. So, I do see a very big role for the international financial institutions in enabling the change that we need to make, which will in turn give us a better – much better chance of bringing the world together.
But if you look back, you know, the world divides itself, it gets fractious around fossil fuels. So the move away from fossil fuels ought to, and I think would, reduce those sources of international tension. But, as we react in the short run, we’ve got to keep our eye on the medium run and recognise that we’ve got to get through this short-term problem, but let’s do it in a way that does not exacerbate the medium-term issues and actually recognise that we can actually do it and the current instability, the current fractiousness, current terrible war in Ukraine should be seen as an argument for going harder and faster away from fossil fuels and thus, I think, to a more harmonious world.
Creon Butler
Nick, well, that’s a really good point where unfortunately I have to – we have to come to an end because we’re out of time, but it’s a really important message and a very positive – well, a positive view on which to end, but I think, as you say, there’s an enormous amount that we all have to do.
I’d like to thank you for sparing the time to be with us today, I really very much appreciate it, and for the insights; you’ve given us a great deal to think about. I’d like to thank Kokou and Societe Generale for their support for this event, and I would also like to thank the audience for their questions, which were great.
One final thing I need to say is to remind those in the audience who registered for today’s discussion through Societe Generale to stay on the line for the follow-on events. But with that, thanks to you, Nick, and thanks to everybody for being with us today.
Professor Lord Nicholas Stern
Pleasure. Thank you, Creon, thank you, Kokou.
